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Perrin & Nissen Limited v. SAS Group Inc.

March 27, 2009

PERRIN & NISSEN LIMITED, PLAINTIFF,
v.
SAS GROUP INC., A NEW YORK CORPORATION, MICHAEL SOBO, INDIVIDUALLY, AND KELVIN CLANEY, INDIVIDUALLY, DEFENDANTS.



The opinion of the court was delivered by: Cedarbaum, J.

OPINION

Plaintiff Perrin & Nissen Ltd. brings this action against SAS Group, Inc. ("SAS"), Michael Sobo and Kelvin Claney alleging trademark infringement, trade dress infringement, and unfair competition under section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), deceptive trade practices under N.Y. Gen. B. Law § 349, copyright infringement under the Copyright Act, 17 U.S.C. § 101, fraud, breach of contract, tortious interference with a contract, and improper assignment of a trademark application. Defendants move under Fed. R. Civ. P. 12(b)(6) to dismiss the Second Amended Complaint in its entirety. Having received defendants' motion to dismiss, plaintiff moves for leave to file a Third Amended Complaint, dropping all claims against Sobo and Claney and many of its claims against SAS. For the reasons that follow, defendants' motion is granted in part and denied in part. All counts and allegations in the Second Amended Complaint not included in the Third Amended Complaint are dismissed. Accordingly, defendants Claney and Sobo are dismissed. Counts V and VI of the Third Amended Complaint are also dismissed. Plaintiff's motion for leave to file a Third Amended Complaint is granted as to counts I-IV and VII and denied as to counts V and VI.

BACKGROUND

In both its Second and Third Amended Complaints, plaintiff alleges the following facts, which are taken as true for the purposes of this motion.

Plaintiff Perrin & Nissen is an English company in the business of manufacturing and distributing toy balloon products in North America and throughout the world under the name "Magic Plastic" and "Amazing Elastic Plastic." The toy consists of plastic compound and a blow-pipe. The user squeezes a small amount of the compound, forms it into a ball, and then inserts the blow-pipe into the ball. When the user blows into the pipe, a balloon, which the user can play with, is created. Plaintiff has been producing this product since 1947, selling the toy around the world under the name "Magic Plastic." In 1994, the toy was imported into the United States to be sold in specialty stores such as Toys "R" Us and FAO Schwarz under the name "Magic Plastic."

In 1997, Defendant Claney approached the General Sales Manager at Perrin & Nissen for permission to sell the toy in the North American mass market. Plaintiff and Claney negotiated an oral agreement that plaintiff would manufacture the toy and Claney, or a company of his choosing, would distribute it. As part of this agreement, it was expressed that plaintiff would retain all ownership rights to the product. The two parties also agreed that the toy should be sold in the mass retail market under a name that was different than the name used in the American high-end stores. Plaintiff decided that the new name would be "Amazing Elastic Plastic" and that it would be licensed to Claney for use in connection with the sale of the toy to mass retailers in North America. The license was limited to products manufactured by plaintiff or its approved contractors.

In October 1997, Claney began marketing the toy as "Amazing Elastic Plastic." Some of Claney's customers required him to assure them that the product bearing the mark "Amazing Elastic Plastic" was the same product as the one bearing the mark "Magic Plastic." Plaintiff confirmed these facts in writing, which Claney provided to his customers.

As this was occurring, on October 24, 1997, The Better Blocks Trust ("Better Blocks"), filed an intent to use Application for Trademark in "Amazing Elastic Plastic." The application stated that Better Blocks was the owner of the mark, had a bona fide intent to use the mark in interstate commerce and that no other person had the right to use the mark in commerce. The Application for Trademark was signed by Claney. On or about April 22, 1998, Better Blocks filed an assignment of the intent to use Application for Trademark to RJM Ventures, Ltd. The trademark registration was issued to RJM Ventures, Ltd. on November 16, 1999.

In early 1998, Plaintiff entered into a written manufacturing and royalty agreement with International Chemical Corporation ("ICC"), pursuant to which plaintiff granted ICC an exclusive license to manufacture the toy in North America for twenty years in exchange for a royalty of 52 cents per each four-pack of the toy sold by ICC, but subject to a minimum royalty of $260,000 per year. Plaintiff disclosed to ICC the secret recipe and process for producing the plastic compound and ICC promised to keep this information confidential. Claney and ICC chose a company called Direct to Retail, Inc., ("DTR") to distribute the toy. DTR was given no ownership rights in either the trademark or the product.

In April 1998, plaintiff decided to change the packaging it was using for sales of the toy under the name "Amazing Elastic Plastic." DTR agreed to revise the artwork and on May 1, 1998, plaintiff approved the new trade dress. Plaintiff then entered into an agreement to license the new trade dress to Claney, ICC, and DTR. The agreement gave them the right to use the trade dress only in connection with sales of the toy under the name "Amazing Elastic Plastic" in North America to mass market retailers and only in connection with the product manufactured pursuant to their prior agreements with ICC and Claney.

On January 19, 1999, DTR filed for bankruptcy, forcing the plaintiff, Claney and ICC to find a new distributor. The parties decided upon SAS, represented by Defendant Sobo. SAS took over for DTR as the North American distributor of "Amazing Elastic Plastic" and entered into the same oral license agreement for plaintiff's trade dress and trademark as its predecessor DTR.

In the spring of 2002, the royalties plaintiff was receiving from ICC from sales of the toy began decreasing. Between July and November of 2002, plaintiff, ICC and SAS all communicated about ways to improve sales. However, sales of the product continued to diminish and in June of 2003, ICC sent plaintiff a letter stating that they made no sales of the toy in April or May of 2003. The letter mentioned that SAS had informed ICC that sales were slow because of imports from China.

In August 2004, Plaintiff and SAS entered an oral agreement, confirmed in writing, that plaintiff would manufacture the toy in England and sell the toy directly to SAS in the U.S. In January of 2005, SAS placed orders with plaintiff for five containers of the toy, the last two of which were to be delivered in May and June of 2005. Soon after, plaintiff and SAS agreed to a price increase for the toy for retail customers, including Target and Walgreen's.

On June 22, 2005, Sobo advised plaintiff that Target and Walgreen's had not only rejected the price increase, but had also decided to no longer sell the toy in their stores. Sobo stated that SAS had no need for any more of the toy. In response, plaintiff demanded that SAS take and pay the quoted price of $95,040 for the final two outstanding shipments from the January 2005 order. On July 20, 2005, Sobo took the position that the plaintiff cancelled the January 2005 order when Target and Walgreen's rejected the price increase. Sobo also stated that SAS owned the registered "Amazing Elastic Plastic" trademark and that SAS would not use plaintiff's photographs or artwork in connection with the sales of the toy.

In September of 2006, plaintiff learned that beginning in May of 2002, SAS had been selling knock-off toy balloon products manufactured in China using packaging that contained part of Plaintiff's trade dress and the trademark "Amazing Elastic Plastic." SAS substituted their knock-off products for the plaintiffs' products when filling orders for the toy for mass-market retailers, while simultaneously telling the Plaintiff and ICC that these customers no longer wanted to sell the toys. Currently, SAS continues to sell the knock-off toy under the "Amazing Elastic Plastic" mark and uses packaging almost identical to Plaintiffs trade dress.

DISCUSSION

I. Standard for Motion to Dismiss for Failure to State a Claim

On a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), factual allegations in the complaint are accepted as true and all reasonable inferences are drawn in the plaintiff's favor. Ruotolo v. City of New York, 514 F.3d 184, 188 (2d Cir. 2008). "To survive a motion to dismiss, a complaint must plead 'enough facts to state a claim to relief that is plausible on its face.'" Id. ...


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